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WestRock (WRK) to Report Q2 Earnings: What's in the Cards?

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WestRock Company (WRK - Free Report) is set to report second-quarter fiscal 2019 results on Apr 30, before the opening bell.

In the last reported quarter, the company’s adjusted earnings per share declined 5% while revenues rose 11%. While earnings beat the Zacks Consensus Estimate, revenues missed the same.

Notably, WestRock’s earnings outpaced estimates in three of the trailing four quarters while coming in line once. The company has average positive surprise of 2.90%.

Let’s see how things are shaping up prior to this announcement.

WestRock Company Price and EPS Surprise
 

Factors at Play

WestRock is benefiting from favorable demand, price and mix trends across paper and packaging businesses. In the first quarter of fiscal 2019, the company witnessed record box shipments, which rose 13.5% year over year. The legacy WestRock North American corrugated box shipments increased 3.1% year over year on a per-day basis, which created a record. The company witnessed higher growth compared with the industry for 20 consecutive months. This momentum is likely to continue in the to-be-reported quarter.

The Zacks Consensus Estimate for total revenues is pegged at $4.6 billion for the fiscal first quarter, projecting year-over-year growth of 18%.

WestRock projects adjusted segment EBITDA in the second quarter of fiscal 2019 to be between $700 million and $735 million compared with $733 million reported in first-quarter fiscal 2019. The KapStone acquisition is likely to contribute $45-$50 million in adjusted segment EBITDA.

Pricing will likely be higher by $10-$15 million in the Consumer Packaging segment in the to-be-reported quarter as a result of previously announced price increases. However, maintenance downtime will be 41,000 tons compared with 17,000 tons in the first quarter of fiscal 2019, which will likely dent results. The Zacks Consensus Estimate for revenues for the Consumer Packaging segment is pegged at $1,696 million for the fiscal second quarter, indicating year-over-year decline of 6%. The Consumer Packaging segment’s adjusted EBITDA is anticipated to decline 13% year over year to $212 million.

In the Corrugated Packaging segment, maintenance downtime will be 88,000 tons in the second quarter of fiscal 2019 compared with 50,000 tons in the first quarter of fiscal 2019. In the Corrugated Packaging segment, the company ended up with approximately 100,000 tons of excess containerboard inventory, following the KapStone acquisition. Thus, in the second quarter of fiscal 2019, it plans to reduce inventories and match production with demand. The mill maintenance downtime and actions taken to reduce inventory are likely to impact earnings in the second quarter of fiscal 2019.

The Zacks Consensus Estimate for revenues for the Corrugated Packaging segment is currently pegged at $2,988 million, reflecting year-over-year rise of 33%. Despite the setbacks mentioned above, the Corrugated Packaging segment’s adjusted EBITDA is likely to surge 23% to $521 million.

The Land & Development segment is expected to report revenues of $10.3 million in the quarter under review, down from $26.7 million in the prior-year quarter.

Wages and related taxes are expected to be sequentially higher by $45 million in the second quarter of fiscal 2019. Other input costs will be moderately higher primarily due to rising virgin fiber costs as a result of the wet weather. Higher acquisition-related depreciation and amortization, and interest expenses are likely to lower earnings by 19 cents per share in the second quarter of fiscal 2019. Tax rate will also be higher at 24.5% compared with 23.3% in first-quarter fiscal 2019.

The Zacks Consensus Estimate for earnings is pegged at 63 cents, indicating a year-over-year decline of 24%.

Earnings Whispers

Our proven model does not predict that WestRock is likely to beat earnings estimates this quarter. This is because a stock needs to have — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. That is not the case here as you will see below.

Earnings ESP: The company’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -2.38%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: WestRock currently carries a Zacks Rank #3. This combined with a negative ESP makes earnings surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Share Price Performance

 


WestRock’s shares have slumped 44% over the past year compared with the industry’s decline of 34%.

Stocks Worth a Look

Here are some companies in the Basic Materials sector you may want to consider, as our model shows these have the right combination of elements to post an earnings beat this quarter:

Arconic Inc. (ARNC - Free Report) has an Earnings ESP of +0.65% and it currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

New Gold Inc. (NGD - Free Report) has an Earnings ESP of +79.17% and a Zacks Rank #2 at present.

W.R. Grace & Co. (GRA - Free Report) has an Earnings ESP of +0.85% and it presently carries a Zacks Rank #2.

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WestRock Company (WRK) - free report >>

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